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Joint bank accounts: all you need to know

Joint accounts can be a convenient and flexible way to manage shared household expenses such as utility bills and mortgage payments.

Married couples, co-habiting couples and even friends can open joint accounts.

You can pay in different amounts, perhaps if one is a higher earner. Or it’s perfectly feasible to have a joint account where only one person pays in.

Many people find it convenient to have more than one account. So, for instance, they might have their own personal current account as well as a joint account.

And very often, these will be with different banks.

How does a joint account work?

A joint account works in much the same way as a ‘sole’ account belonging to an individual.

As a joint account holder, you are given a debit card and a cheque book. You can also set up direct debits and standing orders, so it’s simple to pay household bills.

With a joint bank account, both account holders are entitled to see all the transactions, which means you can both keep track of how the money is spent.

Major commitment

You need to think carefully before you make a joint financial commitment.

Do you both have similar attitudes to money? If your partner is a spendthrift, for example, you might not want to pool your cash.

You might have similar doubts if he or she expects you to account for every penny you spend.

Then there’s the issue of trust. You should be aware that you are liable for any debts in a joint account, even if they were run up by your other half.

So, if your partner goes on a shopping spree and the joint account ends up £2,000 in the red, you are both legally responsible for the debt.

That doesn’t mean you’re liable for £1,000 each. The bank views a joint account as a single entity, so if something goes awry, it will come after both or you, or you as an individual, to put things right.

This means you should also take a long, hard look into the future and plan for the possibility that your relationship might eventually break down.

As a joint account holder, you are given a debit card and a cheque book. You can also set up direct debits and standing orders, so it’s simple to pay household bills

Credit records

Bear in mind that the credit record of the other account holder will have an impact on your own score if you have held a joint bank account together.

So, if they have a bad credit history or run into financial problems in the future, it could affect your ability down the line to get credit, even in your own name.

On the other hand, if they have a spotless credit record, it could make it easier for you to borrow money.

What you should know before opening a joint account

When you open a joint bank account, the bank or building society will ask you to sign a mandate.

The mandate is important because it sets out how the account is run.

There are two basic options:

- You can either decide that both account holders must give permission for withdrawals.

- Much more common is that you agree that either of you can take money out of the account, without checking with the other account holder.

If you both have to sign, you both have more control over how the money in the account is spent.

This can make things more complicated. Imagine if your partner had to countersign every cheque or direct debit form (also, it would not stop your other half from withdrawing all the cash in the account and running for the hills).

For these reasons, most banks don’t even offer the option of a ‘both to sign’ arrangement on current accounts, though you might be able to set up a hybrid agreement where you both have to sign for transactions above a certain amount of money.

What about overdrafts?

Your joint account will almost certainly come with an overdraft facility. But take care because overdrafts can cause disagreements between joint account holders and lead to a lot of financial trouble.

The most important thing to remember is that your partner can run up an overdraft on a joint account without your permission.

But if the account goes overdrawn, each joint bank account holder is responsible for the whole of the debt. In other words, you could end up footing the bill.

Multiple accounts with one bank

Be aware that, if you have a joint account and a sole account with the same bank or building society, the bank can transfer money from your sole account to cover a debt on your joint account.

However, the bank can’t transfer money out of your joint account to cover a debt on your sole account, unless all the joint account holders agree.

What happens if you split up?

If the relationship breaks down, the best option is probably to close the account and divide the money between you. But the bank will need both account holders to agree – usually in writing.

You could also change the account into one name only. Again, the bank would usually need the written permission of both parties.

If the split is acrimonious, either one of you can cancel the mandate. The account is then frozen so no one can use it, including you.

The bank will only thaw the account when everyone agrees how to split the money. If you can’t reach an agreement, the courts will decide.

Legal rules on dividing joint accounts

The courts look at joint accounts differently depending on your relationship with the other account holders and where you live.

For example, if you live in England or Wales and have a joint account with your spouse or civil partner, the money will be split equally, even if one of you never paid in a penny.

If you share your joint account with anyone else, perhaps a friend or sibling, the cash will be divided up according to the amount you contributed.

Whatever you do, you must do something in the event of the relationship coming to an end. If you don’t, your former partner could empty the account or run up a huge overdraft.

Financial protection

Joint accounts are covered by the Financial Services Compensation Scheme (FSCS), which, from 1 January 2016, guarantees savings up to £75,000, or £150,000 for a couple, assuming you have no other money with the same authorised bank or building society.

What are the advantages of a joint account?

• It can be easy to manage your household finances with a joint account.

• You can earn more interest because there is often more money in a joint than a sole account.

What are the disadvantages of a joint account?

• The other account holder can empty the account of cash.

• Each account holder is responsible for any overdraft on the joint account, even if they did not run up the debt.

• It might not be easy to access your money if the relationship breaks down.

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